2021 (12) TMI 460 - HC - Income Tax

Disallowance of deduction expenditure u/s 40(a)(ia) - reasoning recorded by the Tribunal is that in the case on hand, the payees were identified and it is not an adhoc provision as the provisions contained odd figure also - Whether the order of the Tribunal is perverse in law as it failed to appreciate that the provisions were created on head-wise expenses and not with reference to any particular party and consequently such amounts of provisions did not attract the provisions of Section 194C, 194-I, 194-J and 194-H of the Act? - HELD THAT - The said reasoning is wholly unjustifiable, as could be seen from the material available on record, in the provisions made, payees were not identified. The genuiness of the provision cannot be determined on the basis of the figures. The cryptic reasoning of the Tribunal is not suffice to support the findings arrived at. It is trite that proper reason is the essential ingredient of a valid order. It is ex-facie apparent that the contention of the assessee inasmuch as non-identification of the payees in the provisions and the disallowance of deduction expenditure under Section 40(a)(ia) has not been rightly appreciated by the Tribunal. In this scenario, the judgment of the Hon'ble Apex Court in the case of Shree Choudhary Transport Company 2020 (8) TMI 23 - SUPREME COURT would not be of any assistance to the Revenue unless the material aspects are considered with respect to Section 40(a)(ia) of the Act read with Sections 194C, 194H, 194I, 194J relevant Sections under which TDS was required to be deducted by the assessee. These factors necessarily requires to be addressed by the Tribunal keeping in mind the provisions of the Act as well as the legal principles enunciated by the Hon ble Courts. If the deduction is not claimed for the expenditures made in the provision even in the return submitted and the same is offered to tax in the subsequent year after reversing the entries pursuant to the receipt of the bills/invoices by the payees, the matter has to be analysed having regard to, whether income has accrued to the payees to deduct tax at source. In the given circumstances, we deem it appropriate to set aside the impugned order and remand the matter for fresh consideration by the Tribunal. Appeal is allowed.

Summary

Issues:
Challenge to order under Section 260A of the Income Tax Act, 1961 regarding provisions of expenses not attracting TDS under Sections 194C, 194-I, 194-J, and 194-H.

Analysis:

1. Identifiability of Provisions:
The appellant, engaged in various business activities, created provisions of expenses head-wise without reference to any particular party, which were subsequently reversed. The Income Tax Officer disallowed these provisions from expenditure, initiating proceedings under Section 201[1]/201[1A] of the Act. The Commissioner of Income Tax [Appeals] and the Tribunal dismissed the appeals. The appellant argued that the provisions were not identifiable with parties, and no TDS was claimed on the expenditure. The Tribunal's decision was challenged based on similar cases where the liability to deduct tax at source was denied when no income accrued to the payees.

2. Judicial Precedents and Interpretation:
The appellant cited judgments like Karnataka Power Transmission Corporation Ltd. and M/s. Toyota Kirloskar Motor to support their claim that no TDS was required as no income was attributable to the payees. The Revenue relied on the Supreme Court's judgment in Shree Choudhary Transport Company case to argue that non-compliance with TDS provisions leads to consequences under Section 40[a][ia]. The Court analyzed the provisions made by the appellant, noting that they were not identifiable with payees, and referred to previous cases where similar issues were considered.

3. Tribunal's Decision and Remand:
The Court found that the Tribunal failed to appreciate the non-identifiability of payees in the provisions and the disallowance of deduction expenditure under Section 40(a)(ia) of the Act. It noted discrepancies in the Tribunal's reasoning and the material available on record. The Court emphasized the need for proper reasoning in the Tribunal's order and remanded the matter for fresh consideration. The Court highlighted the importance of addressing relevant sections under which TDS was required to be deducted and instructed the Tribunal to reconsider the issue in light of legal principles and provisions of the Act.

In conclusion, the Court allowed the appeal, set aside the Tribunal's order, and remanded the matter for fresh consideration, emphasizing the necessity of addressing the legal provisions and principles in determining the liability to deduct tax at source.